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How to Get More Than the asking Price
When the number of real estate buyers is
greater than the number of available homes,
real estate property values usually go up.
It’s an ideal environment for sellers because
buyers are forced to compete, and properties
usually sell quickly – often for even more
than the asking price! But as more properties
go on the market, buyer competition subsides.
Prices level out, and eventually drop. Most
assume this is a bad time to sell a home.
But in fact, it can be the best time for
educated sellers to tap into a little-known
market, using the creative power of seller
financing.
A seller’s best strategy,
With the help of a professional
Note Finder,
a seller can open the doors to
buyers normally
locked out by traditional financing.
A so-called
“down market” is the,ideal time
for resourceful
sellers to target the millions
of people
who can’t get funding. These
buyers are often
willing to pay more in order
to buy a home
without,traditional financing.,The
seller
sets the price, determines and
accepts a
down payment, and then finances
the remaining
balance. The buyer gets a home
without having
to fully-qualify for a,traditional
loan.
It’s a favorable situation for
both seller
and buyer. And while this “outside
of the
box” form of financing can seem
a bit daunting,
it can happen very,smoothly and
easily with
the knowledge, experience, and
guidance of
a professional Note Finder like
me.,Here
is an example: If the seller
wants $100,000
for the property, and the buyer
gives the
seller $10,000 cash, the seller
will finance
the balance of $90,000. The buyer
and,seller
would then agree to the terms,
such as the
interest rate and the total term,
and use
an attorney to create the mortgage
document
and close the deal. From that
point,on the
buyer sends the seller monthly
payments for
the house he has just purchased.
A great opportunity for sellers,
The whole process can really
be that simple.
But there are some substantial
differences
between a sellerfinanced deal
and one that
relies on traditional bank funding.,First
of all, the seller will not receive
a large
one-time payment at the time
of the sale.
In fact, she will only receive
the down payment.
Since many home sellers are also
looking
to buy another property, the
seller may need
to get enough at closing to pay
her down
payment. Without this payment,
the seller’s
hands could be tied when she
looks to purchase
another house. There is a common
solution
to this issue that offers the
potential for
even MORE money to the seller!
Note Finders
specialize in helping new mortgage
holders
sell newly-created notes for
a lump sum of
cash. In the end, seller financing
could
be used to sell property at a
higher price
than expected and the sellers
could get the
money they need. Essentially,
sellers can
“have their cake and eat it too.”
In summary,
Step #1: Use the seller-finance
option to
find unique customers willing
to purchase
at a higher price than would
have been possible
otherwise.
Step #2: Decide on the terms
of the deal
and create the note to complete
the real
estate transaction quickly.
Step #3: If the property seller
needs immediate
cash, contact me to help locate
a buyer for
the new mortgage note. The person
who buys
the future payments from the
seller will
likely provide the funding to
act as a down
payment on a new house and every
party involved
in the deal comes out smiling.
How Creative Home Sellers Have The Advantage
Creative home sellers offering
seller financing
can often sell their houses faster
in a slow market - often at a
higher price!
In the process, these sellers
act as the
“bank,” and begin to receive
monthly payments
instead of a lump sum of cash.
So what happens when those offering
seller
financing need an immediate lump
sum of cash instead of scheduled
future payments?
Locating a buyer for the
newly-created cash flow could
be the answer. To get the money they need, sellers
that offer financing could sell
the future
mortgage payments they are set
to receive.
How sellers get quick cash for
their notes
This process can be streamlined
when the
savvy home seller lines up a
buyer for
the payment stream before the
note is even
created. This way the property
seller
could have a buyer for the payment
stream
ready to make the purchase as
soon
as the new private mortgage is
created. Once
the closing and the note sale
are
complete the seller will have
the money she
needs for her next home.
Finding the buyer for the seller-financed
mortgage is the tricky part.
Buyers won’t
line up
at your door. In fact, they don’t
often browse
the newspaper or the web looking
for people
with notes to sell. This is where the professional
Note Finder comes in! Note Finders are
real estate professionals that
specialize
in connecting the people who
create notes
with
those who buy them.
While I do not assist with the
creation of
a note, nor buy the note directly,
I can
provide
general recommendations about
the types of
terms that are attractive to
Note Buyers.
With my knowledge, experience,
and connections
within the secondary finance
industry, I
can save home sellers a lot of
time and effort
when liquidating a note. Most
importantly,
I can help locate a buyer for
your notes
and make the process smooth and
easy. When
working with a property seller
who needs
a lump sum of cash immediately
after selling
real estate,
contacting a finder like me early
in the
process of creating the real
estate note
makes sense. By involving a Note
Finder before
a note is created, the property
seller can
receive valuable input about
the payment
characteristics that Note Buyers
prefer.
And for any completed seller-financed deals,
a qualified Note Finder can help Note Holders
obtain a large amount of cash
in exchange
for future payments.
Smart Seller Strategies
Make the Sale and Keep the Money
The Seller’s Misconception
Many Property sellers avoid seller
financing
because they believe it’s not
a viable solution
for selling a home. After all,
if they can’t
walk away with enough cash to
provide the
down payment on another property,
they’ll
be powerless to replace the property
they’re
selling.
But in Actuality, many notes
created through
seller financing are quickly
sold for cash.
Even better, if the note is created
with
the buyers’ purchasing criteria
in mind,
the seller could walk away from
the closing
table almost exactly the same
as with a conventional
real estate sale.
In the cases where Note Holders
do encounter
difficulty in selling their monthly
payments,
it’s typically because the note
was not created
with the Note Buyer in mind.
This is why
it is a good idea to involve
a professional
Note Finder even before the note
is created.
Planning ahead to make a note a “good deal”
Creating notes with the Note Buyer’s needs
in mind
If the seller of a private note
needs a large
amount of cash immediately, she
will want
to sell the note as soon as it
has been created.
And to quickly find a buyer,
the note must
meet the general buying parameters:
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A substantial down payment |
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An excellent credit score |
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An interest rate of 8% or more |
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A term that comes due in 10-15 years |
If there is no down payment collected
and
the interest rate is low, the
note would
be great for the new property
owner, but
not to a potential Note Buyer.
In a “no money down” real estate
sale, lenders
worry that the buyer could walk
away and
lose almost nothing financially.
So to offset
this risk, lenders generally
set higher interest
rates so they get more money
per payment.
Unfortunately, Note Buyers do
not have the
ability to change the terms on
the note.
So when there is little or no
equity in the
property, all offers to purchase
the secured
note must be discounted substantially
in
order to compensate for the buyer’s
chances
of default. The Downside is that
a heavily
discounted buyout offer often
means the seller
can’t get the money she needs
from her note.
Market Pricing for Real Estate Notes
Note Buyers’ priorities
Typically, buyers consider their
risks in
three general ways.
1 Equity A small amount of equity creates an insignificant
safety net for buyers should the note go
to foreclosure. So, many will offer lower
prices to create equity and lower Investment
to Value (ITV).
2 Payor Quality most buyers will look at the Payor and the
potential for default objectively. Does the
Payor show a good recent history for steady
payments and a consistent job history, despite
a poor credit rating? If so, a Note Buyer
might still make an attractive offer if there
is plenty of equity to protect the Note Buyer’s
capital.
3 Time Value of Money The Note Buyer’s primary concern comes from
the principle regarding the time-value of
money – the factor that determines the amount
of time it will take to get her investment
back. Money is worth more today than in the
future, so the longer the term of time frame,
the less the note is worth.
How Risk Determines the Discount
Financial institutions and banks
purchase
prime, secured mortgages on a
regular basis.
These payment streams are often
purchased
at a price on par with or slightly
less than
the note’s current balance. The
transfer
of ownership of these cash flows
is usually
completely transparent to the
payor or new
home owner.
When banks sell and buy cash
flows they’re
typically working with institutions
with
similar lending parameters. This
means that
the buyers are familiar and comfortable
with
the credit rating and demographic
of the
payor, as well as the structure
and critical
metrics of the mortgage. That’s
why when
a bank sells a note it doesn’t
require a
deep discount.
But consider that most note deals involve
limited equity or a payor with a low credit
score. As a result, banks and lending institutions
aren’t comfortable with purchasing private
notes because they consider these cash flows
to be loans with a greater potential for
default.
Five most important factors of a note
When liquidating a note, it is
important
to get the biggest lump sum of
cash possible.
To do that you must understand
the four most
important factors in determining
that value.
The four criteria are equity,
the Payor’s
credit score, the number of payment
made,
and the note payment history.
Equity is created in three ways
1) When a down payment is made
2) As monthly payments are made
3) As the property appreciates
4) New credit report
5) Current market value report
Generally speaking, Note buyers
look for
at least 20% equity in the property.
This
minimum level of equity serves
to help protect
their investment.
Many Note Buyers will consider
the Payor’s
credit score closely because
it can help
predict the note’s potential
for foreclosure.
Credit scores are indicative
of performance
with past and current debts,
so it makes
sense to assume that a Payor
who has been
responsible in consistently paying
back other
debts will be a good note Payor
as well.
With seller-financed deals most
Payors will
not have a stellar credit, but
most buyers
still prefer Payor credit scores
above 575.
A note payment history takes
any late payment
into consideration. Understandably,
more
buyers prefer a consistent on-time
payment
history. Perfection isn’t required
or expected
– one isolated occurrence of
a missed payment
a few years ago won’t necessarily
dissuade
a potential Note buyer. Sufficient
equity
also serves to counterbalance
a history of
occasional slow payment.
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Have a Mortgage Note?
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Money in a month!
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